Which of the following is a characteristic of the 'New Trade Theory' associated with Paul Krugman?
A. Trade is explained only by differences in factor endowments
B. Only comparative advantage based on technology differences matters
C. Economies of scale and product differentiation can explain trade even between similar countries
D. Trade always reduces welfare
Answer: Option C
Solution (By JKSSB Mock Tests)
New Trade Theory emphasises that increasing returns to scale and consumers’ preference for variety can generate trade and gains from trade even between countries with similar factor endowments.
Explanation:
Keynes proposed the liquidity preference theory, which states that the rate of interest is determined by the demand for and supply of money, where demand arises from transactions, precautionary and speculative motives.
Explanation:
Issuing currency notes is the sole prerogative of the Reserve Bank of India. Commercial banks accept deposits, provide loans and create credit.
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